and filing properties
a system to keep track of properties that interest you. A good tracking
system is important since most pre-foreclosure buyers pursue many
properties sometimes over a period of several months.
you find a property online, it's a good idea to drive by the property
to get a better idea of the property's condition and the type of
neighborhood. For some buyers and investors, driving by the property
facilitate a casual meeting with the owner or yields a wealth of
unexpected information from a talkative neighbor.
a property enters pre-foreclosure, the owner usually has at least
2-3 months to reinstate the property by paying off the amount in
default. The reinstatement stops the foreclosure process, so it's
important to find out if a property has been reinstated before proceeding.
The best way to check if the property has been reinstated is to
call the trustee or attorney assigned to the foreclosure. The trustee
cannot typically answer questions about the property; they can just
let you know if the property is still in foreclosure or not.
the potential bargain
out as much as you can about the estimated market value of the property,
how much is owed on the property and if the owner has any other
liens against the property. This is all public information and you
can research on your own with the county recorder. This process
should not take more than a day or two, because you don't want to
delay long before contacting the owner in default.
the owner in default
or your real estate agent should initiate contact with the owner
to express your interest in the property. Before you expend the
time and effort to contact the owner, make sure you're fully prepared
the owner has decided to list the property for sale, you can simply
contact the listing agent. Once the property is listed with an agent
there may not be as much bargain potential, but you can still negotiate
a good deal because you know the owner has a limited amount of time
to sell before the bank repossess the property or sells the property
at public auction.
most cases, the owner has not listed the property for sale, so you
will need to pro-actively contact them. In this case, contacting
the owner can be tough, but the potential bargain is greater because
you'll be cutting out the listing agent's commission.
the owner by mail to start. The basic message to communicate to
the owner is that you're interested in buying the property and you
want to work out a purchase agreement that benefits both parties.
be surprised if the owner does not respond to the mail immediately.
In most states, the owner has several months between the initial
foreclosure notice and the public auction. During this time the
owner will consider all the options available, including refinancing
or selling. An owner's first reaction is usually not to sell. But
if no other options work out, selling is a better option than losing
the property at public auction.
successful pre-foreclosure buyers and investors send quite a few
postcards to properties in their area before they find an owner
who is interested. It's not uncommon to send out several postcards
to the same owner during the foreclosure process. The owner may
be more interested to sell as the auction date looms closer. If
the owner doesn't respond to postcards, some buyers and investors
will try to reach the owner by phone or in person. If you do this,
be prepared for a possible rude response as these methods of contact
are more inherently confrontational. And always keep in mind that
the owner in default retains ownership rights to the property during
the pre-foreclosure period. If they are not interested in talking
with you, it's time to leave.
the owner rejects all of your contact attempts, you may still have
a chance to purchase the property at public auction, which occurs
if the owner doesn't sell or pay off the amount owed during the
pre-foreclosure period. You could also call the trustee periodically
to check if an auction has been scheduled.
a purchase agreement
Once you have made contact with the owner, you should meet with
them for further discussion about the property. As part of this
meeting, or a later one, you should arrange to walk through the
property to make sure it meets your criteria as a buyer.
owners in foreclosure may not have the money to make repairs to
their property, you might be willing to buy the property "as
is." But you still want to keep a tab of estimated repair costs
and subtract them from your purchase offer. Your willingness to
put some "sweat equity" in the property after you purchase
it will increase the chances of realizing a good bargain.
you and the owner both agree to proceed, you need to negotiate the
terms of a purchase. These negotiations will involve you, the owner
and the foreclosing lender. A real estate agent can be a valuable
resource during the negotiating process.
the loan in default is assumable, you may be able to pay off the
amount in default and take over payments under the current terms
of that loan. If not, you will need to pay off the full amount owed
on the loan. If the property has other liens placed on it, you'll
need to make sure those are cleared out as part of the purchase
agreement. If the owner has equity in the property above and beyond
the liens, then you can offer to split the equity with them, allowing
them to walk away with cash and you to acquire a property below
might be more willing to work with you if you are flexible to help
them out in creative ways that address their situation. You could
offer to let them stay in the house for a certain amount of time
(possibly paying rent) until they find a new place to stay. You
could offer to pay their housing costs for the first month or more
after they leave the property. If you're purchasing the property
as an investment, you may let them stay and pay rent until you decide
to resell the house. There are myriad ways to work out an agreement
that benefits both parties. Remember, just selling the property
during pre-foreclosure allows owners to avoid a foreclosure-marred
credit history, making it easier for them to find a new place to
negotiating the purchase agreement with the owner, you should also
contact the foreclosing lender and any other lien holders. You want
them to know you plan to purchase the property and satisfy any liens
against the property. You also may be able to negotiate a lower
payoff amount to satisfy the debts owed. Since you're saving them
the trouble of pursuing and collecting the debt owed them, some
foreclosing lenders and lien holders will clear liens on a property
for less than 100 percent of the amount owed. This is another way
to realize a bargain during pre-foreclosure.
goal for you as a buyer is to purchase a property at least 20 percent
below full market value, although better deals are often possible.
When determining the final purchase offer, you should also take
into account the rate of real estate appreciation in the area and
the potential for increasing the house's value by making repairs
Once you've arrived at an agreement with the owner in default, the
foreclosing lender and any other lien holders, you can put the agreement
in writing. If you're not familiar with how to draw up a purchase
agreement, you should have a local real estate agent or real estate
purchase agreement should make closing the deal contingent on a
full title search conducted by a title company or attorney. The
purchase agreement should also allow for a professional inspection
of the property before closing the deal.
escrow company, who acts as a third party, can manage the transfer
of money and property ownership. Assuming that you have your financing
secured, this should be a fairly smooth process.